Foreign currency exchange or Forex offers investors a convenient way to earn a profit from market movements. While many people are aware of the rise and fall of the stock market, or that the price of Gold seems to go up and down on a regular basis, fewer keep track of the shifting value of units of currency relative to each other.
Understanding the relationship between different Forex pairs will improve your chances of making a profit on an ongoing basis.
FX trading was first used by banks to make international commerce easier. As travel became more commonplace, large financial institutions needed a way to get rid of any foreign currency that their clients had brought to them.
In order to exchange one currency for another, the banks needed to agree on relative values: how much of one currency would it take to buy another currency. Because these values were updated frequently, eventually first banks, and then outside investors, realized that you could buy a currency at one price, and then sell it later at a different price for a profit.
It took the rise of the internet to make this opportunity available to traders from outside of the world of high finance. Specialized brokerages emerged in the ‘90s, which developed software that pooled orders from thousands of people and connected them with banks offering to buy and sell different currencies and lower rates.
Depending on the broker you choose, you can now exchange hundreds of currencies 24 hours a day, between when the market opens for business on Sunday evening, until when it closes for the week on Friday evening. However, most orders involve one of four currency pairs: EUR/USD, USD/JPY, GBP/USD, or USD/CHF.
When you decide to become a currency trader, your first step will be to create an account with a broker. You will be given access to a platform where you can make deposits and select pairs to buy and sell.
A reputable company will ask you to verify your identity and source of income, to prevent fraud and money laundering. You can then study the markets to determine which currencies are likely to experience volatility, which creates large price shifts for traders to exploit.
Forex is a unique chance to turn your knowledge of financial events into profit. Once you can see the relationship between the world’s major economies and their underlying money systems, placing orders will no longer seem complicated. We recommend that you learn more about investing in currencies by exploring a respected platform.